The summer rally – or rather, short squeeze – hit the brakes when the US released an additional list of 200 billion USD worth of Chinese products to be hit with tariffs, giving Beijing a mere two months to resolve the trade issues. Stocks turned South (SPX futures -0.60%, Nikkei -0.89%, Shanghai -1.92% – it’s worth mentioning that with the announced German- Chinese economic alliance, Chinese automakers like Great Wall Motor jumped, but overall they are still in a brutal downtrend, losing 30%-40% since last year on fears that China indeed loosens the grip on car competition – this is a very telling sign), industrial metals were sold off (Copper -3.5%, or -18% since January, Zinc -4.5% or -26%), and even oil prices retreated somewhat (WTI 73.60, Brent 78.20 USD). As discussed earlier, at this point things will get interesting in the so-called trade war as China simply doesn’t import enough to simply strike back – it’s no wonder Beijing said it will be forced to retaliate but there were no details. Otherwise, the victim of the day was the Turkish Lira (USDTRY jumping to 4.75 and Turkish stocks losing more than 3%) after President Erdogan named his son-in-law as Finance Minister, gave itself the power to appoint the central bank governor and even more importantly, Turkish energy producers were reported to be slowly collapsing under their FX liabilities. (According to Commerzbank, by now capital controls may be the only option for Turkey.) The Lira selling and the generally negative sentiment put regional currencies under pressure, too (EURHUF 324.50, EURPLN 4.33, EURCZK 25.91), and in an important development, Hungarian inflation just exceeded the magical 3% (3.1% for June, and this figure doesn’t even include the Forint depreciation yet).

Traders and geopolitical analysts prepare for the fateful NATO summit starting today and the Trump-Putin meeting right after, not to mention the May-Trump talks (altough traders already joke that Trump and his wife are more interested in meeting the Queen). While the mainstream media is focusing on how hostile the NATO summit may turn out to be, in my opinion the atmosphere is much less important than the eventual decision of EU leaders. (Yes, there is a decision here to make: 1. Either complain but increase defense spending radically. 2. Let NATO lose its importance and build up a parallel European organization spending even more. 3. Keep talking doing nothing and watch NATO depreciating with Trump redirecting resources toward Asia and the Middle East. In contrast, the Trump – Putin meeting is set to be more fruitful, with the talk being that Israel, UAE and Saudi Arabia is pushing a ’Grand Bargain’ between the two powers, essentially giving concessions on the Ukraine and sanctions, in return for an arrangement on Syria and Iran. (In the meantime, in a funny – maybe not for the participants – story, Washington is pressuring Germany to not to allow Iran to fly home more than USD 350 million in cash (!), skirting US sanctions.)